NYC Says Renting Out Your Place Via Airbnb Is Running An Illegal Hotel

by Mike MasnickWe've seen this over and over again: new and innovative startups enter a market in a creative and compelling way, and a combination of incumbents and regulators get in the way of something cool happening. Perhaps the most well known recent example of this is with Uber, but probably a close second is Airbnb. Airbnb is the immensely popular system for letting people rent out their homes/apartments/spare rooms to willing guests for (usually) short stays. Completely coincidentally, just this morning, I tried Airbnb for the very first time, trying to book a stay in Manhattan for an upcoming trip. And... soon after I submitted my request, I saw this report that officials in New York City have deemed Airbnb to violate the city's "illegal hotel law." Basically, they're arguing that people renting out their homes are running illegal hotels. They originally asked the guy who rented his condo out to pay $7,000 for both violating that law and for zoning and building code violations, but then dropped the latter part, and lowered the fine to $2,400 for just the hotel part.

Of course, laws like the illegal hotel law are supposed to be about public safety, and to maintain certain health and safety standards. But, the reality is that, like so much regulation these days, it's turned into a way to keep competition out. Laws to protect hotel visitors certainly made some amount of sense in the past, but most of the reasons why they're in place don't necessarily apply to the way Airbnb functions. Because we can now share information pretty easily, Airbnb's detailed review system and communication process take away most of the "risk" that necessitated a health and safety law.

Just as an example, in my own search for a place to stay, I went through about half a dozen different apartments that were available, and looked over the pictures and carefully read the reviews. I immediately discounted the cheapest one, because multiple reviews mentioned that the apartment had not been cleaned prior to them showing up. Information and the sharing of information made that place undesirable just like that. No laws needed. I also emailed back and forth with a few other apartment/condo owners to find out some details about their places, before finally selecting one that worked for me. Honestly, the experience has been awesome so far, giving me much greater choice, and the likelihood of a much nicer stay than in a hotel.

The new ruling doesn't suddenly make Airbnb itself "illegal," but does suggest that if the city finds out that you're using the service, you could face stiff fines. At the heart of the issue is a really stupid law that was basically designed to make Airbnb impossible: it says you can't rent out your place for less than 29 days. The only purpose of this law is to protect hotels from competition. The backer of the law claims that it was really about landlords illegally converting residential buildings into hotels, but if that was the case, they should have made the bill a lot clearer, because it's being used to punish this Airbnb user. Airbnb, which tried to intervene in the case, is (quite reasonably) disappointed:

This decision runs contrary to the stated intention and the plain text of New York law, so obviously we are disappointed. But more importantly, this decision makes it even more critical that New York law be clarified to make sure regular New Yorkers can occasionally rent out their own homes. There is universal agreement that occasional hosts like Nigel Warren were not the target of the 2010 law, but that agreement provides little comfort to the handful of people, like Nigel, who find themselves targeted by overzealous enforcement officials. It is time to fix this law and protect hosts who occasionally rent out their own homes. Eighty-seven percent of Airbnb hosts in New York list just a home they live in -- they are average New Yorkers trying to make ends meet, not illegal hotels that should be subject to the 2010 law.

As the reports note, this doesn't mean that the city will now be going after the tens of thousands of residents who rent their places out on Airbnb, but if complaints are filed, it can go after them. Hopefully, this doesn't scare off the person whose house I just requested... But, more importantly, this shows, yet again, why bad regulations can do serious harm to innovation, often while serving to protect less innovative incumbents.

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